Pensions are becoming a civic burden

While some causes of San Bernardino's fiscal crisis are unique to that Inland Empire city, at least one poses a growing threat to other municipalities throughout California: pension benefits.

San Bernardino has seen its pension obligations double in the past six years, and they are soon expected to take up about 15 percent of the city's overall spending.

Similarly, cities and counties throughout California have faced a rising tide of pension expenses in recent years that has eaten up a greater share of annual revenue that could be spent fixing streets and hiring cops.

Much of that is driven by better benefits negotiated with public employee unions over the years - some when the financial markets were providing investment returns that could cover the added expense.

"There's no doubt that if you offer more generous benefits, you're digging a deeper financial hole for your city or county," said Joe Nation, a public policy professor at Stanford and former state assemblyman who co-authored a report on pensions earlier this year.

"If you look across California, the cities and counties and special districts that have offered higher levels of benefits are often the ones who are in more trouble."

The city of Los Angeles, for example, offers an average annual pension benefit to civilian workers of $46,000 - one of the highest cited in a report from the Stanford Institute for Economic Policy Research. Public safety employees collected on average $61,000.

Just a few years ago, the city was facing a projected $1 billion deficit and the risk of bankruptcy, in part because of rising pension obligations. It has managed to avoid disaster by laying off workers, cutting services and working on ways to reduce retirement benefits.

Long Beach pension fix

While Long Beach officials have cut $209 million from the city budget and eliminated 811 positions since 2004, they also achieved a landmark pension reform deal last year.

The concessions from its police and fire unions will help Long Beach, the largest city in the California Public Employees' Retirement System, lower its retirement expenses by $100 million in the next decade, city officials say.

The deals involved givebacks from current employees in addition to reduced benefits for future workers.

Members of both unions agreed to up their pension pay-in from 2 percent of their salary to a full 9percent employee contribution.

Future police officers and firefighters in Long Beach will receive 2 percent of their salary as pension for each year worked and will reach retirement eligibility at age 50. Those who were already in the union before the new agreement will continue to receive 3 percent of their salary annually as pension and can retire at age 50.

The public safety employee concessions will result in $6million in savings in the next fiscal year, according to city officials.

However, Long Beach will still have to deal with deficits estimated at $17.2 million in 2013, $10.9 million in 2014 and $6.4 million in 2015, while facing a critical need to replenish a police officer corps that is being depleted through attrition.

Budget pressures have prevented funding a police academy since 2008.

Still, at no time, city officials have said, has bankruptcy been considered, because financial planning has focused on a disciplined approach that matches ongoing expenses to available revenue while resisting pressures to spend disproportionately on public safety.

County in the black

Some municipal governments, such as Los Angeles County, have so far been able to manage the growing pension costs without being forced to make severe cuts.

The county offers an average annual pension benefit to public safety workers of more than $81,000, according to the Stanford report. For nonpublic safety employees, the county's average annual benefit is $37,500.

The county has seen its spending on pensions grow by an average of 9.5 percent per year over the past decade, while L.A. city has seen it grow by 10.1 percent - and L.A. County has one of the lowest pension burdens in the state.

Los Angeles County officials said they have been dealing with the pension issue for more than three decades, when the county first withdrew from the Social Security system to use its own pension funds.

The Los Angeles County Employee Retirement System has assets of more than $40billion and is the largest county retirement plan in the United States and, last year, received $1.4 billion in contributions from its employee members.

For this year, the county is spending $1.12 billion for its retirement budget, 4.59 percent of the county's total budget of $24.5 billion.

David Sommers, acting director of public affairs, argued the county's system is considered one of the most cost-efficient plans in the nation.

"It has been reformed four times since 1977, including four separate benefit rollbacks and increased employee contributions," Sommers said.

"The state is only now beginning to discuss implementing reforms that the Board of Supervisors started over 30 years ago."

LA avoids bankruptcy

In the city of Los Angeles, Mayor Antonio Villaraigosa drew a line in the sand two years ago, rejecting a call by a number of leaders - including former Mayor Richard Riordan - to have the city declare bankruptcy.

Instead, the city took steps to reduce its workforce, implement some pension reforms, place workers on furloughs, consolidate agencies and impose a hiring freeze.

"We were running on fumes," City Administrative Officer Miguel Santana said in an interview last week. "We were at a point where we were borrowing money to pay our bills."

But he said the city rode it out by reducing its civilian workforce and winning voter approval to reduce pensions for newly hired firefighters and police officers. Similar reforms are being considered for the civilian workforce.

Villaraigosa has proposed to the City Council more pension reform for civilian workers. Among them is increasing the retirement age to 67, reducing health costs and eliminating cost of living adjustments.

The mayor also wants to cap pensions to 75 percent of pay after 32 years of work and cap payments for retiree health care and limit who is eligible.

Santana's office has been working on the details, but the city unions remain in opposition, and the mayor has not been able to get action taken by the City Council.

Santana said he would surrender on pension reform if the unions would give up their annual cost of living increases.

The other option, he said, is to find a new revenue source by doubling the documentary transfer tax - paid for by people who sell their homes. The tax now is $4.50 per $1,000 on the sale price of a home. Santana said they would like to double it, bringing in another $100 million a year.

Lowell Goodman, acting communications director of SEIU Local 721, said the union has argued developing a new tier will not result in an immediate savings.

And, he said, most of the union members believe it would be punishing them after they had agreed to a series of cuts over the years.

"We've done pension reform," Goodman said. "We have increased the age of retirement to 62. Most of the civilian workforce wants to continue to work. They have kids in college and mortgages. So any additional increase is ridiculous."